Bringing e-discovery inside: 12 tips for in-house counsel

When Douglas McLean set out to investigate options for streamlining electronic discovery (e-discovery) at TransCanada PipeLines Ltd., he didn’t fully appreciate what he was getting into.

“It became a much bigger project than I anticipated,” says the director of litigation, arbitration, and alternative dispute resolution at the pipeline giant. “Along the way, I learned a lot.”

Three years later, TransCanada, which operates in Canada and the United States, has a sophisticated, state-of-the-art internal e-discovery system that comprises a blend of hardware, software, and analytics. It allows its in-house lawyers to better identify and manage relevant electronic documents when they are hit with litigation or become involved in regulatory matters.

McLean notes that TransCanada has employees on both sides of the border. “When we implemented this, we wanted installations in both countries. We wanted the ability to search the entire system from either country, with the ability to store data in the country that it originally resided in.”

At the heart of what the legal department built is software from Recommind, Inc., which McLean says “is a fairly sophisticated system that allows us to do a fair amount of analytics on the data.”

The system went live about a year ago, and McLean says the “tool has been used quite extensively.”

When it comes to e-discovery, legal departments across the globe are looking for the best ways to manage the growing digital tide of information swamping their companies. Discovery is one of the most expensive tasks when it comes to managing litigation or responding to regulatory actions, and with the advent of electronically stored information it is becoming unwieldy to manage the various caches of data, ranging from documents and reports to emails and social media.

A spring GC Value Insights report published by the Association of Corporate Counsel shows a growing trend among Fortune 50 companies to insource or centralize e-discovery. The ACC spoke to 17 general counsel from the top Fortune 50 companies and most indicated they are finding value by managing some aspect of e-discovery in-house, as opposed to simply dumping massive amounts of data on their external law firms and letting them call the litigation shots.

For example, according to the report, Procter & Gamble has insourced and centralized e-discovery, as has the Bank of America, and mortgage giant Freddie Mac is bringing its e-discovery practices in-house, work that was previously done by outside vendors, and it is building an end-to-end process for managing e-discovery.

The report also states that Exxon Mobil Corp. has been building a “robust, centralized e-discovery process that is handled primarily in-house.” It consists of 15-20 professionals that work with the global IT team. The group “focuses on efficient and co-ordinated processes designed to meet legal requirements and reduce costs.”

Others, such as AmerisourceBergen Corp. mandates its external law firms use approved vendors to manage the collection of electronic information and those vendors work on pre-negotiated rates. A single law firm oversees the e-discovery process for the law department.

Experts say insourcing e-discovery is a recent phenomenon. “It is a trend that has been growing for a few years,” says Chuck Rothman, director of e-discovery services at the law firm Wortzman Nickle Professional Corp. in Toronto, which focuses on providing legal advice around e-discovery and records management issues in litigation. Rothman first started noticing the trend in 2010, at the large U.S. LegalTech trade show. Since then there has been a “big push” and now it has reached Canada. “There is a whole raft of software out there,” he notes, which companies can use to help them.

However, he warns it’s not as easy as it might seem. “While on the surface insourcing may seem like a great idea — why pay someone to do something your under-worked in-house IT people can do themselves — in some cases, buying software turned out to not be a good solution, and led to higher costs than if the work was outsourced to a knowledgeable vendor.”

For companies that operate on both sides of the border it’s important to note that the Canadian and American legal systems view discovery differently. In the U.S., discovery is more of a fishing expedition, so lawyers will make sweeping claims for discovery of electronic documents in a bid to unearth evidence that assists in building the case.

In Canada, the discovery rules rely more on proportionality when it comes to deciding what should or shouldn’t be disclosed. Factor in different laws involving things like privacy, money laundering, and legislation like the U.S. Patriot Act and putting together an internal e-discovery system is a challenging proposition.

But it is likely a necessary one given the continued increase in digital information that companies generate, which will only increase with the advent of social media, such as Twitter and Facebook, where companies engage clients electronically. It means businesses will likely be forced to capture more of that online interaction. Factor in a more litigious environment, driven in part by lawmakers deciding to outsource consumer market oversight to plaintiff class action lawyers, and new regulation in key areas such as competition law, and it makes for a much more demanding environment for litigation departments.

Weeding through those millions of emails, Internet communications, and digital documents means companies that don’t act now to bring some order to their ability to search and retrieve relevant documents could find themselves paying millions of dollars if they are sued and ordered to disclose such information.

Worse yet, information that could later prove relevant in litigation may be improperly destroyed or unearthed too late, opening the company to charges of spoliation.

The need to be prepared has never been greater. Here are 12 tips on insourcing e-discovery:

1. Size doesn’t matter, volume doesFirst, you need to determine whether it’s necessary to set up some type of internal controls to facilitate e-discovery. A retail business dealing with a few slip and falls and some firings each year is much different than a pharmaceutical company engaged in patent litigation. “Generally, size does not matter,” notes Dominic Jaar, national practice leader, information management, and e-discovery at KPMG LLP. “What is key is if your organization is or is not in the business of being sued,” says the former Borden Ladner Gervais LLP litigator who launched his own e-discovery technology firm that KPMG acquired. “It’s the volume and nature of litigation or investigation that justifies internalization, rather than the size of the organization. Some of the biggest holding companies are worth billions, but they never get sued because they have few operations.”

2. Discovery is not just digitalThe first thing to remember is that discovery is not just about digital information, notes Vince Catanzaro, senior counsel and global discovery manager for the science and engineering firm DuPont in Wilmington, Delaware.

DuPont has set up a Discovery Excellence Center, which manages discovery issues across the global company, including Canada. “We are charged with managing the process,” he explains. Every week the team receives reports of new matters that have been created through the firm’s e-billing system. Internal lawyers handling the file are contacted and a meeting is set up to discuss what the case is about so that the discovery team can start identifying relevant documents.

Catanzaro notes that a company like DuPont has been around long before the digital information revolution so paper is part of the process. They have more than 120,000 boxes of archived documents that are set aside, which is a “drop in the bucket compared to what we have on our servers and email. You have to think of discovery not just as electronic discovery.”

3. Get a readiness assessmentOne of the first things TransCanada’s McLean did as part of his project was to obtain an e-discovery readiness assessment. “It’s useful to bring in a third party with a fairly critical eye who can look at what your current processes are and give you an assessment of where you are. In most cases, it’s likely to be something of a reality check.”

4. Know your recordsExperts say that e-discovery is all about records management, which DuPont’s Catanzaro calls the “ugly step child of IT.” Discovery costs escalate when companies have to pore over irrelevant data looking for the important nuggets. “If you have a good process, you don’t have to hold every piece of paper or every shred of information forever,” Catanzaro says.

Laurie MacFarlane, senior counsel, litigation, at the CIBC Legal Department agrees “a lawyer needs to generally be aware of a company’s systems, record retention policies and key employees managing technology to understand the scope and limits on electronic records.”

5. It takes time to mapMcLean says before you start talking to software vendors, you need to figure out what data you need to get at and where it is located. That takes time. “One aspect of our project involved a fairly significant amount of data mapping to determine where the lion’s share of data was located,” McLean says. They reviewed more than 100 software applications across the company, which included tapping into unstructured data on desktops, such as PowerPoint presentations, emails and spreadsheets.

6. Build a multidisciplinary teamLegal departments that have internalized e-discovery have succeeded by building a team that blends legal, paralegal, project management, and technology skills.

McLean says while it’s important to have proper processes in place, “you need to have some people who are dedicated to dealing with this. We decided we should hire an e-discovery manager to sit on top of the process and be in a position at any point to be dealing with legal holds, directing the collection of data and being an interface between the legal department and information service people whose assistance is necessary to collect the data.” McLean adds when he advertised for the job of discovery manager, he received applications from people with a range of skills from IT professionals to project managers and paralegals. He hired a paralegal familiar with the software they were purchasing.

CIBC’s MacFarlane adds that “I don’t think it’s a function you can delegate to someone who doesn’t know the case,” so it’s important that the lawyer handing the file remain heavily involved in the process.

7. Collect and preserve MacFarlane says that acting quickly to collect and preserve documents is key. “Once you preserve everything, you can take a deep breath and know everything is there.”

That means understanding records’ retention policies, because they can differ within an organization. “Some are shorter than others,” she warns.

8. Avoid the ‘oops’ factorExperts say that analytics is one area that is rapidly changing when it comes to e-discovery. Jim Michalowicz, a former in-house litigation manager and now a consultant with Altman Weil, Inc., says that once you identify the location of relevant information, you need to collect it from the various custodians inside the company who are in possession of the material. He suggests creating a central repository as you prepare information for production.

Michalowicz explains that as companies move from collecting data to analyzing it the “cost per unit to touch one of the pieces of data or documents becomes more expensive.” That’s why it is critical to “reduce the size of the collection before it gets lobbed to outside counsel or an outside service provider for review.”

“There is a certain amount of risk,” he says, when it comes to e-discovery. If the matter gets to trial and a witness says, “‘I had this document and I turned it over to legal department, but opposing counsel says they never received it,’ that is one of those ‘oops’ moments.” Be prepared to “dedicate the time and the resources when looking into a system.”

An enterprise solution is not cheap. The software costs thousands of dollars and implementation can run into the million-dollar plus mark with staff time and resources and hardware.

9. Technology is only a toolMacFarlane says that “technology is a tool that can assist in efficient management, but it can never replace having a complete understanding of the issues in dispute.”

So legal departments need to tread carefully. Jaar says about two-thirds of investment today is going into the collection and preservation side of the e-discovery equation; the remaining one-third is going into review and analysis software. He says legal departments think, “we are going to buy the software and we’re going to be done. Having software does not mean you have the capacity to use it efficiently. You cannot use it once a year. You need to use it constantly.”

Rothman says the biggest mistake he sees legal departments make is they overlook aspects of the e-discovery process when purchasing their system. For example, they don’t properly address collections or legal holds.

McLean says the important thing to remember when considering technology is that “there is no magic solution to any of this. There is no piece of hardware or software that can be implemented and all of your problems go away.”

His firm used a request for information and a procurement process to narrow down the options and identify the top vendors. Some vendors provide the entire suite of products, which include identification, collection, preservation, legal holds, early case assessment, processing, reviewing, and analyzing documents. Other vendors will form joint ventures with counterparts who each have part of a solution.

He says you need to figure out what model works best for your company. “We do a lot of litigation internally so our litigation lawyers wanted a tool that would enable us to do early case assessments on the data to get a sense of what the litigation looked like.”

10. Maintain a proper head countJaar says look at the human factor, and ask yourself if you have enough people and if there is a sufficient workflow to justify the investment. It’s a new field, he says. If you can’t afford to send people to conferences to keep them abreast of new developments, then insourcing the process is a “non-starter for most organizations.”

11. Think aheadLegal departments need to think ahead about their needs and changing technology. Jaar warns “it is impossible to keep pace with technology.” For example, two years ago no one was talking about predictive coding. Today, it is one of the hot buttons as a way to search documents. Also, the software world is moving to a service model. Rather than a corporation making a capital investment to buy software and maintain it, software vendors are now providing the hardware, maintenance and support. Cloud computing is also going to impact e-discovery in the future. So it is important to work with the IT department to determine whether it is better to buy or rent the technology. You don’t want to be stuck with an Edsel, when everyone else is driving a Cadillac.

12. Change managementFinally, McLean says that a successful implementation means having people dedicated to the task of managing the process. “There needs to be a recognition that some sort of change management is going to have to be involved.” Employees have to understand that when a legal hold notice is sent out, it requires people to react immediately and if they don’t “there are going to be consequences.”

Whether or not you think your legal department is ready to implement an e-discovery system internally, the reality is e-discovery has become part of the fabric of litigation and is not going away. Says McLean, “It is going to take up more of your time and it is something that you are going to have to devote more of your attention to.”